Tuesday, May 21, 2013

Collateral Damage

As I wrote previously, I am concerned about the amount and degree of debt that my family, friends, villagers and fellow residents of the Isaan are getting into, during this current period.

Without getting into the details of Thai politics, let me simply say this, as background to the loan/debt issue: 1) The Isaan has always been the poorest and most neglected region of Thailand, up to present day; 2) The current government owes its life to the voters of the Isaan (just as the Taksin government, in the early 2000s); and 3) The current government of Yingluck Shinawatra has not forgotten how it came to power and is pumping huge amounts of Thai bahtinto the area, including backing a liberal loan policy for all banks.

What this all boils down to for the average Khon Thai living in Thailand’s Northeast is that loans are much easier to get as well as job opportunities have increased tremendously.

Because baht is more easy to procure, people are building – not only for personal lifestyle improvements, but also in the hopes of generating more income in the future. Loans come most easily to government employees, but if you have land and put it up as collateral, it’s easy to get a loan.

OK, sounds good, right?

Well, it would if the average Khon Thai knew more about borrowing based on ability to pay back.

My experience in America is that I had to clearly demonstrate a realistic ability to pay back the loans I was taking out before the banks would even consider loaning me the money. I don’t get that impression, here in Thailand.

I think that far too often loans are given (primarily by banks) based on collateral – not the ability to pay back. That is, it doesn’t matter to the lender if the borrower cannot pay back the loan as long as the borrower’s collateral (usually land) is of higher value than the loan. Under this kind of modus operandi, it actually benefits the lender for the borrower to default.

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